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PC makers search for the ‘Plan B’ key

As global sales decline, companies get creative.

Personal computer sales plunged 14 per cent in the first three months of the year, the biggest decline in two decades of keeping records, as tablets continue to gain in popularity and buyers appear to be avoiding Microsoft Corp's new Windows 8 system, according to a leading tech tracking firm. REUTERS/Babu/Files (BABU / REUTERS)

Facing the steepest desktop computer sales decline on record, hardware, software and processor makers are working on Plan B.

While Intel reboots its traditional PC micro processors for the burgeoning mobile market, the world’s biggest chipmaker is also betting on a television system that combines pay TV with web programming at rates comparable to those charged by cable companies.

In the meantime, rising demand for server chips helped the Santa Clara, Calif.-based company Tuesday maintain sales and margin forecasts even as PC sales fell 14 per cent in the first quarter from a year ago.

The company on Tuesday said it earned $2 billion (U.S.), or 40 cents per share, in the January to March quarter, matching analyst forecasts. Income, however, was down 27 per cent from $2.74 billion, or 53 cents per share, a year ago. Revenue was $12.6 billion, off 2.3 per cent from $12.9 billion a year ago.

Intel sales are under pressure as consumers shift electronics dollars away from PCs and toward less expensive smartphones and tablets, few of which use Intel chips. The company is scrambling to get a foothold in these devices.

“We now compete wherever there is computing,” departing CEO Paul Otellini said on a conference call Tuesday.

Rival chip maker Advanced Micro Devices, which is to report quarterly results Thursday, ended fiscal 2012 with a 17 per cent decline in annual revenues and $1.18 billion in losses for the year.

AMD, which saw it stock fall by nearly two thirds last year amid a drastic drop in global PC shipments in 2012, is expected to swing to a loss of 17 cents per share, from a profit of 12 cents a year ago,

Microsoft Corp., the world’s largest software company, is forecast to report a 13.3 percent profit increase for the third quarter on Thursday as strong global software revenue offsets falling PC sales and a tepid response to its Windows 8 operating system.

Barclays Research in a report said Microsoft will post strong growth in its server and tools sectors as well as its business division.

International Business Machines, which sold its personal computer business to Lenovo in 2005, is to announce quarterly results that are expected to show continued growth in its software segment while its services and hardware unit lags.

The slump in global desktop shipments has forced PC and chip makers to rely more on server and business software sales but others are also getting creative — experimenting with alternate hardware such as a folding computer that transforms into a tablet from a traditional laptop.

And vendors are taking a page from the gesture-controlled interfaces of smartphones and tablets, with leading hardware maker Hewlett-Packard on Tuesday saying Leap Motion’s 3-D controllers will be included in some of its computers this year.

The Leap USB devices, which allow tracking of finger and hand motions, will be bundled with PCs and other HP devices as the company attempts to cope with a plunge in hardware shipments.

The drop has steepened even with the launch last fall of Microsoft’s Windows 8 operating system that many were counting on to help reinvigorate sales in the $223 billion PC industry.

Windows 8 has so far failed to breathe life into the market, though analysts say Microsoft will likely launch an update later this year using new Intel processors that should improve battery life and performance.

PC and supplier companies are looking for a formula to combat unit sales that could force deep cuts in processor and PC prices if the decline does not ease in the second half of this year as some forecast.

Last week, two market research firms reported double-digit global drops for all top vendors except China’s Acer and Lenovo, which have outpaced the industry on sales of lower-priced PCs in emerging markets.

IDC said worldwide PC shipments totaled 76.3 million units in the first quarter, down 13.9 per cent compared to the same period in 2012 and worse than the forecast decline of 7.7 per cent.

The contraction marked the worst quarter since IDC began tracking the PC market in 1994. The results also marked the fourth consecutive quarter of year-on-year shipment declines.

Despite mild improvement in the economic environment and some new PC models offering Windows 8, PC shipments were down significantly across all regions compared to a year ago, IDC said. Fading mini-notebook shipments took a big chunk out of the low-end market, while tablets and smartphones continued to divert consumer spending, it said.

Greengart said the traditional desktop offers storage and content creation that exceeds the reach of tablets and smartphones and remains a necessity for business clients who account for half of PC sales.

With files from The Associated Press

The PC industry’s efforts to offer touch capabilities and ultra-slim systems have been hampered by factors such as limited component supply, as well as a weak reception for Windows 8, IDC added.

IDC said mid- and bottom-tier vendors are also struggling to identify growth markets, describing the industry as at a critical crossroads facing strategic choices about how to compete with alternative devices.

Gartner Inc, which published its own figures showing an 11 per cent PC shipment decline, blamed shrinking sales partly of netbooks, the mini laptops that have been supplanted by tablets.

“Consumers are migrating content consumption from PCs to other connected devices, such as tablets and smartphones,” said Gartner analyst Mikako Kitagawa. “Even emerging markets, where PC penetration is low, are not expected to be a strong growth area for PC vendors.”

Avi Greengart, research director of consumer devices at Current Analysis, said along with focusing on developing markets, many PC makers are looking to exploit niches such as gaming, or are investing in simplified platforms to match the easy of use that has helped draw consumers to tablets and smartphones.

He said PC makers understand that they need to carve out a place in the mobile computing markets, but added that “there will always be a place for the desktop.”

The workplace appears to be among the venues where PCs can remain relevant, according to IDC, which said that while consumer sales of desktop PCs continue to fade, businesses appear be buying them at a stable rate or are even expanding their purchases.

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